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Colony Financial (NYSE:CLNY)

Q4 2012 Earnings Call

March 07, 2013 10:00 am ET

Executives

Lasse Glassen

Richard B. Saltzman - Chief Executive Officer, President, Director and Member of Investment Committee

Darren J. Tangen - Chief Financial Officer, Chief Operating Officer, Principal Accounting Officer, Treasurer and Member of Investment Committee

Neale W. Redington - Senior Vice President, Controller, and Chief Accounting Officer

Kevin P. Traenkle - Chief Investment Officer

Analysts

Kenneth Bruce - BofA Merrill Lynch, Research Division

Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division

Gabriel J. Poggi - FBR Capital Markets & Co., Research Division

Operator

Greetings and welcome to the Colony Financial, Inc. Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Lasse Glassen of Addo Communications. Thank you. Mr. Glassen, you may begin.

Lasse Glassen

Good morning, everyone, and welcome to Colony Financial, Inc.'s Fourth-quarter and Full-year 2012 Earnings Conference Call. With us today are the company's Chief Executive Officer, Richard Saltzman; and Chief Operating Officer and Chief Financial Officer, Darren Tangen. Kevin Traenkle, the company's Chief Investment Officer; and Neale Redington, the company's Chief Accounting Officer, are also on hand to answer questions.

Before I turn the call over to them, please note that on this call, certain information presented contains forward-looking statements. These statements are based on management's current expectations, and are subject to risks, uncertainties and assumptions.

Potential risks and uncertainties that could cause the company's business and financial results to differ materially from these forward-looking statements are described in the company's periodic reports filed with the SEC from time to time.

All information discussed on this call is as of today, March 7, 2013, and Colony Financial does not intend and undertakes no duty to update future events or circumstances. In addition, certain of the financial information presented in this call represents non-GAAP financial measures. The company's earnings release, which was released last night and is available on the company's website, presents reconciliations to the appropriate GAAP measure and an explanation of why the company believes such non-GAAP financial measures are useful to investors.

And now, I'd like to turn the call over to Richard Saltzman, Chief Executive Officer of Colony Financial. Richard?

Richard B. Saltzman

Thank you, Lasse, and welcome, everyone, to our fourth quarter and full year 2012 earnings call. 2012 was a breakthrough year for Colony Financial, and I'd like to take a moment to discuss our accomplishments for the year, including how that momentum has carried into 2013 and what that means for our company going forward.

One year ago, I reported that Colony Financial was just reaching its full stride, and the stage was set to demonstrate the advantages of Colony's platform, breadth of relationships, and expertise in acquisitions, originations, asset management and capital markets. Our 2012 results show the potential of the platform that we have built: A premier real estate investment and finance company, with a powerful franchise that allows us to access capital efficiently, and put that capital to work in a proprietary fashion.

Today, Colony Financial stands at 1.5 billion of stockholders equity, more than 5x our size at IPO, and recent capital markets and investment activity have demonstrated that we are now at a scale where we can both efficiently access the Capital Markets and execute a higher volume of loan portfolio acquisitions and origination opportunities, in addition to funding new platforms like our single family home rental strategy. Growth does not come at the expense of weaker financial results, however. 2012 Core Earnings increased to $1.65 a share from $1.49 per share in 2011, and common stock dividend totaled $1.44 a share for 2012, compared to $1.31 a share for 2011.

We have stated from the beginning that we are a total return investor. Our investment portfolio has been constructed to generate both current yield and capital appreciation. And this was evidenced over the course of 2012. We had 9 realized and partially realized transactions during the year, that generated an internal rate of return of 19% and 1.5x multiple on invested capital, representing $135 million of cost basis. This strong operating performance also helped facilitate a successful year of capital formation. Since the beginning of 2012, we have raised aggregate net proceeds of approximately $850 million. $250 million in 2 offerings of our Series A Preferred Stock, and $600 million in 3 separate common stock offerings at progressively higher priced equity issuances, which are expected to be accretive to earnings.

Since the beginning of 2012, we have prudently invested or committed to invest, approximately $1.1 billion across our 3 primary investment strategies. $263 million and 12 loan acquisitions involving approximately 900 loans, $278 million in 8 new originations, and $550 million in our single family homes for rent platform, or what we refer to as CSFR. In addition, we continue to have a robust pipeline of additional loan acquisitions and new originations, including some new potential deals in Europe, and we expect to announce some of this additional transaction activity shortly.

Since our inception in 2009, our investment philosophy has been to earn attractive risk-adjusted returns for our shareholders, while being agnostic about where in the capital stack to invest, relative to the available yield and the quality of the underlying real estate and associated cash flow. In 2009 and 2010, we were focused on earning equity-like returns, primarily from investing in first mortgage debt. Now, based upon increasing evidence of an upward cycle in commercial real estate fundamentals, following a 5-year period of uncertainty and stabilization, we invest in opportunities up and down the capital stack, including equity positions, and across a broad spectrum of real estate asset classes.

On the debt side of the business, due to the incredible spread compression and plain vanilla debt origination, we have concentrated most of our new origination business on off-the-run asset classes and geographies, transitional assets, mezzanine loans and preferred equity. We also continue to pursue some very attractive loan acquisition opportunities. And consistently, our predilection is to generate our target returns through conservative leverage and well underwritten credit risk, as opposed to using financial engineering and excessive leverage. Accordingly, our 2012 activity reflects the continued evolution of Colony Financial’s portfolio to incorporate a larger portion of equity or equity-linked real estate investments. Inclusive of consummated transactions, subsequent to year end 2012, and our total commitment of $550 million, the Colony single family home for rent strategy, or CSFR, approximately 40% of our current investment portfolio is now equity-oriented. Our commitment to CSFR of $550 million, just upsized from $450 million, will be invested at CSFR's original cost. $375 million of that amount has been funded to date, with the balance expected to be called during 2013.

Including Colony Financial’s commitment, CSFR has now raised total commitments of approximately $2.2 billion of equity in the aggregate, of which approximately $1.1 billion has been called, leading CSFR sufficiently capitalized to pursue its near-term business plan. Beyond the current equity commitments, in order to continue investing in single-family homes, CSFR will seek to utilize a credit facility or other debt financing to expand its asset-base, and ultimately will seek to raise additional capital at prices in line with the increased fair value of the CSFR portfolio at that time.

We continue to be very excited about this once-in-a-lifetime opportunity to participate in and support the U.S. housing recovery, through the establishment of a national operating and investment platform that is singularly focused on this new institutional real estate asset class. The housing sector continues to display some of the most attractive investment attributes of any real estate asset class at this time. In less than a year, the Colony platform has grown to become one of the largest owners of single-family homes for rent in the United States, with approximately 7,000 owned homes, and we expect to see continued strong growth from the company in terms of its asset-base and operational performance in the future. We are long-term investors in this business, and we are applying our past experience, incubating other operating companies to build this platform to succeed for the long run.

In order to manage the CSFR homes portfolio, we have currently built an organization composed of more than 350 people dedicated to this strategy, and who are deployed across 3 main functional areas: Acquisitions, Renovations and Leasing and Property Management.

In Acquisitions, through year-end 2012, we had acquired approximately 5,400 homes, and as I mentioned, CSFR's current total home count is now approximately 7,000. CSFR has built a diversified national footprint across 7 states, including Arizona, California, Colorado, Florida, Georgia, Nevada and Texas, and we continue to grow the portfolio through multiple acquisition channels. These include large REO and rental portfolios from banks and government-sponsored enterprises like Fannie Mae, mini-bulk lease portfolios, typically from local investors and individual MLS and trustee purchases. To give a sense of current acquisition pace, we bought approximately 790 homes in the month of February, and we expect to acquire an excess of 1,000 homes per month in the coming months, which excludes any larger portfolio acquisitions. The current average cost basis across the CSFR portfolio is approximately $130,000 per home, which we believe represents a meaningful discount to replacement cost, and is expected to generate a net yield at the asset level of between 6% and 7%. This range is consistent with current actual financial results from the leased portion of our portfolio. The cost acquisition pace has exceeded our leasing rate over the past few months. Our portfolio-wide occupancy has actually dipped to 53%. However, from a management perspective, we considered the occupancy data for our 180 day old inventory as more indicative of leasing progress, where our current occupancy is approximately 90%.

And of the homes we have leased after acquisition, we have achieved rents very consistent with underwriting. To date, we have leased over 2,000 homes in the aggregate, including 390 in February. In terms of upfront CapEx, we are spending approximately $20,000 per home that undergoes renovation, and on an average, across all of our own homes, renovation spend per home is approximately $8,000. We have been surgically focused on improving the leasing, renovation and leasing functions of our business, with a goal to reduce costs and cycle times, and ultimately run a more efficient and integrated operating platform.

So in conclusion, we're proud of the diversified investment portfolio we've built to date, which by design has a balance of high-yielding commercial real estate debt than more equity-oriented interests like single-family homes for rent. As the market continues to change and improve, our portfolio mix will likely migrate to more equity, although we will be incessantly mindful of continuing to manage the balance in support of our current dividend and its eventual growth.

So now I'd like to turn the call over to Darren Tangen, our COO and CFO, for a more detailed summary of our fourth quarter financial results.

Darren J. Tangen

Thank you, Richard. Fourth quarter 2012 core earnings were $18 million or $0.41 per basic and diluted share, and net income was $13.5 million or $0.31 per basic and diluted share. Of note, net income in the fourth quarter of 2012 was impacted by approximately $0.07 per share of non-cash equity compensation expense resulting from some accelerated equity awards prior to year end, and approximately $0.04 per share of depreciation expense, resulting from our interests in single-family homes, and our Hotel Portfolio. These 2 non-cash adjustments represented the vast majority of the differential between our reported net income and core earnings.

I'd like to take a minute to discuss our investment in CSFR, and its impact on our financial results. For the fourth quarter, CSFR contributed a relatively small loss of $1 million, or $0.02 per share to our results, or a core loss of $250,000 or half a penny when depreciation is added back. As mentioned last quarter, CSFR remains in an active growth mode, and it will continue to produce unstabilized financial results, while it continues to acquire a significant number of vacant homes. Accordingly, current overall portfolio occupancy is approximately 53%.

CSFR continues to make good progress on leasing. February was our most productive leasing month yet, with 390 new leases signed, but at present, acquisitions of vacant homes are outpacing new lease signings, so overall portfolio occupancy is in temporary decline. This will continue in the short run, but we expect this trend to reverse in 2013 as renovations and leasing activity catch up to the CSFR's acquisitions pace, at which time we would expect portfolio occupancy and earnings to improve. Given the asset growth plan for CSFR in 2013, based on a $2 billion plus equity capital base, we expect our interest in CSFR won't produce a net loss on a GAAP basis for 2013, but should turn positive on a core earnings and FFO basis later in the year.

That said, we remain encouraged by the results of CSFR's lease portfolio, which are consistent with our earlier comments on the economics of the business. Net stabilized rental yields at the asset level in the 6% to 7% range, accrued depreciation and before the potential benefit of leverage and future home price depreciation. We would expect that leverage will be meaningfully accretive to current yields on a stabilized portfolio, and home price appreciation could ultimately deliver even higher equity total returns over the longer term.

With respect to fourth quarter investment activity for Colony Financial, we deployed $243 million, of which, $105 million was for CSFR, $52 million was invested in 2 new loan originations and $86 million was related to 4 separate acquisitions. The 4 acquisitions I noted are comprised of over 600 performing and nonperforming first mortgage loans, and represent an aggregate commitment of $86 million at a purchase price of $0.61 on the dollar. These investments, on a combined basis, are expected to generate leverage returns in the mid-teens range. The loan originations included a $38 million commitment in 2 mezzanine loans associated with the Extended Stay refinancing that bear interest at a blended rate of 10.5% per annum. In addition, we also committed $14 million to a joint venture that originated a $28 million debt facility, secured by a master plan housing development located in Southern California. The loan bears interest at 10% per annum, and includes an equity participation.

Subsequent to quarter end, we have thus far completed and circled an additional $481 million of equity deployment, covering all 3 of our primary investment strategies. $295 million additional investment in CSFR, for a total of $550 million, $163 million in 3 new originations and $23 million in a loan acquisition.

I'd also like to quickly touch on some of the asset management successes in the fourth quarter. Across our seasoned, small balance loan portfolios, which include 13 investments with a total book value of $220 million, and an average purchase price of $0.50 on the dollar, we have resolved approximately 30% of the unpaid principal balance as of year-end 2012, and total collections on these resolved loans average 1.4x our purchase price basis. Trailing 12 months weighted average current yield for the remaining loans in these portfolios, as of year end 2012, was 8%.

As a separate performance indicator on our FDIC loan portfolios, 5 of our 8 portfolios have now paid off their acquisition debt, and are distributing cash to the equity. In December, we successfully restructured our 103 Hotel Portfolio, accomplishing several matters. An extension of the mortgage loan that carries an attractive interest rate of LIBOR plus 110 basis points, a change in hotel management, the sale of a minority equity interest to the new management company to better align our interests and a re-flagging of the hotels with various nationally recognized brands. We are highly optimistic about this investment, and the impact of these changes, and based on current projections, we believe this investment could ultimately generate an internal rate of return close to 20%.

In the fourth quarter, we also favorably resolved an office asset in Berlin through a receivership sale and realized our investment in the William Lyon Homes senior secured term loan, the latter of which produced an IRR of 21%, and an equity multiple of 1.6x, an excellent result for what was first mortgage security.

Regarding capital markets activity, as Richard noted before, total equity capital raised in 2012 and early 2013, from both common and preferred stock offerings, totaled approximately $850 million representing more than 125% increase in our total equity capitalization since the end of 2011. We currently have a book equity capitalization, common and preferred, of approximately $1.5 billion.

On the liability side of our balance sheet, we remain very low leveraged, a discipline we intend to maintain. However, we expect to introduce a prudent amount of incremental leverage to our balance sheet over the course of 2013. We expect this will be accomplished through several means. One, we expect to refinance our $175 million credit facility with a significantly larger facility. Two, we will continue to seek accretive ways to finance our underlying investments with non-recourse, matched term investment level financing. And three, we may also consider other forms of accretive equity-linked balance sheet financing. Our balance sheet provides us a tremendous amount of flexibility to capitalize on the many investment opportunities that we now have before us.

That concludes our prepared remarks, and we would now like to open the call up to Q&A. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Ken Bruce with Bank of America Merrill Lynch.

Kenneth Bruce - BofA Merrill Lynch, Research Division

My first question really is -- trying to better understand the current market backdrop, you kind of mentioned in your opening remarks that you're, in essence, targeting specific investments that have the return thresholds that you've held out for quite a bit of period of time. We've seen a lot of spread compression, a lot of liquidity in the market chasing assets, and I'm just trying to better understand how you perceive the runway for keeping this type of return profile in the debt side of the business, if you think there's sufficient off-the-run markets for you to, in essence, gravitate towards, as the market continues to chase yield, if you could just give us a better sense as to how you see that part of the market playing out?

Richard B. Saltzman

Sure. Look, I think there's still plenty to do. It's just that it's more difficult to do for what I would describe as conventional assets that are cash flowing at a regular run-rate basis. Where, given the thirst for yield, as you were just saying, there is a lot of spread compression. So on the debt side of our business, in terms of new origination in particular, we're moving more towards transitional assets, geographies, and going further down the capital stack, to basically get to the high single-digit or double-digit yields that we look for on an unlevered basis. We also, from time to time, are incorporating some modest leverage, whether it's through laying off an A-note or other constructs that are similar, to further turbocharge those returns up to the overall levels that we seek to produce, which are in the low- to the mid-teens. And there's plenty of runway. And including, beginning to see, anecdotally, some activity perking up in Europe right now, both from a loan sale perspective as well as from a new origination perspective, where the traditional lenders really, for the most part, are sitting very constrained, not really capable of providing capital like they used to. So Europe is kind of where the U.S. was in our opinion, 2 to 3 years ago, and really burgeoning and just starting to be fertile from the standpoint of investments that we can be making. The other thing that I think we said in our comments is that, we also are pretty sanguine about equity investments in real estate today that may make sense for Colony Financial and as we see the market now stable and generally speaking, with some exceptions, fundamentals really improving, kind of across the board. We have more confidence about going even lower in the capital stack in terms of equity, and generating very high risk adjusted rates of return for the company.

Kenneth Bruce - BofA Merrill Lynch, Research Division

And turning to the CSFR, in the past, you discussed some potential realization strategies and I'm focused on your comments, just in terms of being a long-term investor in the sector. Is that a comment about the subsidiary, or is that a comment about Colony Financial's involvement in the sub?

Richard B. Saltzman

Yes, well, I -- look, I think, at the end of the day there could be the same answer for both, or alternatively, there might be separate answers, for the platform that actually is making the home investments and what Colony Financial itself actually does with its very significant investment in the homes platform. I think right now, we're still very much in a growth mode, ramping up at an incredible pace and seeing lots of opportunity ahead of us, just in terms of the ability to buy at scale. So I think the 2 are totally aligned for the moment, and they may stay aligned forever. But it could deviate at some point down the road. Just remains to be seen. But for now, very aligned. We just incrementally increased our investment by $100 million, from $450 million to $550 million. Again, really showing how confident and optimistic we are about that particular platform.

Kenneth Bruce - BofA Merrill Lynch, Research Division

Okay, and you've mentioned in the remarks about it being a new institutional asset class. I wonder if you feel that, that's being recognized sufficiently by capital markets or if you think that there's still a disconnect in terms of how the operators that have moved into this sector view it versus the Capital Markets?

Richard B. Saltzman

Well, it's -- I mean it's like other things that we're just at their beginning. There's a lot of different opinions and views, not necessarily a lot of conformity yet. And, it's kind of good news, bad news, whether or not we want the market to totally accept that it is an institutional asset class right upfront, to be candid, because if everybody had that view today, maybe the market would look a lot more efficient than what we're currently seeing. So it's good to have a lot of people who are skeptics, because that creates more inefficiency, in our opinion.

Kenneth Bruce - BofA Merrill Lynch, Research Division

Right, okay. And then maybe lastly, is there a -- is there any evidence that financing is available in the single-family business, either from a corporate level perspective or at the individual asset level?

Richard B. Saltzman

So, yes, there's a lot of evidence on financing. Banks have already been active in this space. We haven't tapped into any facilities yet, but banks have already been active in the space. There's also a view that you could do securitization, albeit I think the rating agencies are just at the beginning of their analysis, so where a securitization for this business might rate in price, probably is not terribly efficient yet. But the bank market appears to be quite robust, and that's really where we're focused. We still have $1 billion of dry powder in the CSFR platform, but we're buying at a pretty rapid pace, as we said, in our remarks at about a 1,000 a month is our expectation in terms of homes that we'll be acquiring. But on the agenda is putting together a bank facility that we can tap into sooner rather than later.

Operator

Our next question comes from the line of Jade Rahmani with KBW.

Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division

I wanted to ask a couple of quick ones. First, just what's the main difference between fair value and book value, how much accumulated depreciation is there? And then secondly, if you could just clarify the line item on the balance sheet called distribution in excess of retained earnings, and whether that relates to the accumulated depreciation?

Darren J. Tangen

Okay. Hey Jade, it's Darren here. Let me take the first question on fair value. I mean, as you know, we've historically not provided individual detail of our fair value marks. In the past, the differential was quite dependent on 2 particular investments. One was -- that we did call out, one was First Republic Bank, which is obviously a smaller position today although the fair value is well in excess of cost basis. That remains the case today. The second that we've called out historically, was our William Lyon Homes position, which has now been realized. So the differential between the fair value and our book value is actually more diversified across all 51 of our investments today. Maybe the one that I would call out is for single-family homes, our investment in CSFR and there, the fair value, as of the end of the year is up 5%, relative to cost basis. So that was a partial contributor to the differential between our fair value and book value. As to -- sorry, your second question was on...

Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division

Just the distribution and excess of retained earnings line item, if that's related to accumulated depreciation. Since GAAP net income of $0.31 in the quarter was less than core earnings, and partly on depreciation.

Neale W. Redington

Yes, it is partly related to the depreciation. You're right.

Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. Then secondly, just more broadly, you mentioned equity. I wanted to see if you could comment on what other asset classes you find interesting. Two of the first mortgages, post the fourth quarter had development characteristics, are those the types of loans you're increasingly looking at, and just on the equity side, I'm sure you're aware there's not much capital available to private homebuilders, would you consider that space as attractive, and what other asset classes are interesting?

Richard B. Saltzman

Yes, certainly, I mean, just focusing on the last part of your question, I think the residential space we think, continues to be very interesting here. Consistent with what we're already doing in terms of literally buying homes, and then renting them. So we do think play is connected to land, and in particular for single-family, perhaps in some cases multifamily too, is very interesting. I mean, in connection with these development situations where we're talking about debt, these are generally speaking, first mortgages. So we feel we're in the right place in capital stack, relative to these types of risks that we're taking. But there are other equity opportunities. What I would again describe as more off-the-run deals that either have a lot of complexity and/or are kind of a little bit more orphaned, vis-à-vis the typical institutional and/or public REIT interest that you might find in kind of equity real estate that we are also looking at. And part of that, we've said from the beginning, we're very interested, from a credit standpoint, in terms of looking at sale-leaseback type transactions, and we have reviewed a lot of those types of deals here since our inception. At the end of the day, we've gotten close on a couple of things, but have never pulled the trigger, but that continues to be a space that we're interested in as well.

Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division

And the land banking you referred to, would that be to smaller private builders, or to larger national builders?

Richard B. Saltzman

Could be either, but I think probably just from a -- we have an -- more of an edge or an advantage, I think, with the private builders. The public builders have more options, access to capital, so I think -- not to say that it couldn't happen, but I think it's more likely to happen with some of the private groups.

Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division

And then, just turning to the single-family. I wanted to see how you would address skepticism about, or the market's continued skepticism about the ability to operationalize the business. You comment on the 6% to 7% net rental yields that you're seeing on the lease portfolio. I wanted to just confirm, are those on the actual current cash flows, and is the 2,000 leased homes you cited inclusive of the February activity?

Richard B. Saltzman

Well first of all, yes, it is on the actual homes that we have rented, the 6 to 7% numbers. So that's based on actual data at the asset level. And I -- yes, the numbers that we're citing and quoting are as of today, in terms of being at 7,000 homes, so it does include February and January.

Darren J. Tangen

But, Jade, I'd say that the distinction we're trying to make in the 2,000 homes that we've leased since acquisition, that does not include homes that we purchased leased. So what we were trying to show there, those are homes that we purchased vacant, took through the renovation process and then leased up. Our actual number of leased homes is higher than 2,000, that's because we bought some homes that were already leased.

Richard B. Saltzman

So I mean, just rounding out the answer to the question though, I mean, so you've seen our occupancy dip a little bit. This is just based on the pace of acquisition, I mean if we literally were to stop buying today, we would stabilize at 90% and higher, from an occupancy standpoint, given the success that we see on the leasing side of the business, it just doesn't make any sense for us to do that right now, given the buying opportunity.

Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division

Okay. I think there's also been some concern about supply, specifically with existing home sales at a multiyear low, in terms of month supply. Do you think supply is adequate to feed the institutional investor appetite for REOs, and you've referred to the smaller bulk portfolio acquisitions, but do you see other sources of supply, or at least the mix of supply changing?

Richard B. Saltzman

We've -- look, we're not supply constrained. And if you look at the pace of acquisitions, I think it bears that out. And there may not be everything on the market that theoretically is available to be on the market, so I think, what you're witnessing is, people have held up back a lot, kind of watching the market, and then as confidence improves, and they see a little bit better visibility on pricing, more of what's in the shadow inventory then starts to come to market. So you still got a lot that's sitting there with the banks, a lot that's sitting there with the GSEs, and a lot of troubled situations that we think over the next couple of years, 2 or 3 years, will come to market and will be an opportunity for buyers like ourselves. But if you would would've totaled, kind of all of the activity from the significant players that you're aware of, who are in this space, we have trouble getting to even 50,000 homes right now.

Neale W. Redington

Jade, it's Neale Redington. Just to expand on that question you've asked about a distribution in excess of retained earnings, it's a combination of, as you've mentioned, depreciation and our non-cash equity comp expense. So those 2 are already non-cash charges, but we're picking up through the income statement, hitting retained earnings, as opposed to our dividends.

Operator

[Operator Instructions] Our next question comes from the line of Gabe Poggi with FBR.

Gabriel J. Poggi - FBR Capital Markets & Co., Research Division

Two quick questions for you. I want to piggyback on the supply question, but turn to loan portfolios, can you give a little color about what the supply's like out there for acquisition of loan portfolios, who's selling? I know you guys have commented over last couple of quarters that the kind of pace had picked up, but just would be interested in any color you can provide around that.

Kevin P. Traenkle

Yes, Gabe, it's Kevin here. So we're actually underwriting a major portfolio right now, it's a pretty big one. We have our folks out in the field underwriting the assets. Think it's around $350 million of face, coming directly from a regional bank. That's becoming more and more common. We are seeing the banks entering into these sale processes directly. The FDIC, they still do have some inventory that they're selling off. Last year they took down 58 banks, and the best that we can tell, they haven't sold any of those loans that they took onto their balance sheet from those banks that failed. So what we do expect the FDIC to continue to sell down their stuff over time. So loan portfolios, there's still a pretty healthy inventory of those to come.

Gabriel J. Poggi - FBR Capital Markets & Co., Research Division

Has competition for that increased, would you say, or I mean just generally speaking? Because you guys have a lot of FDIC obviously that you've done, and then, you've kind of had the backbone, so to speak with the FDIC and certain other loan portfolio acquisitions. Are there more, is there more competition for those portfolios?

Kevin P. Traenkle

No, actually, and as you can imagine, the nature of these large portfolios, it takes an incredible amount of infrastructure to be able to underwrite them, and then after you buy them to manage and work them out, your servicing units and you work out units, that's something that Colony invested in heavily over the years. So basically, what we believe that's happened is the people that haven't invested in that infrastructure aren't going to do it now. So we're seeing the same very small handful of people participating in these auctions that are taking place. So no increase in competition whatsoever.

Richard B. Saltzman

Yes, particularly for the smaller loan balance stuff, which remains an area of focus for us. But then, even beyond portfolios, I think if you look at some of the newer deals that we did, there's individual assets in there, coming out of some of the financial institutions. We mentioned Europe is kind of beginning to percolate somewhat, even though we haven't done anything yet recently. But we would expect, going forward in '13, that's more likely to become the bigger part of our new flow. So, yes, it's still pretty robust.

Gabriel J. Poggi - FBR Capital Markets & Co., Research Division

And then one other question, kind of back to CSFR, and you guys have talked about this in the past, but you said you have a kind of $1 billion of untapped equity at the overall platform, how do you think about tapping that equity, and then potentially a monetization of the platform at some point in the future, as it relates to CLNY?

Richard B. Saltzman

Yes, well, I mean that -- first of all, we've stopped raising equity, at least for the moment. We're taking a pause and our view is this was probably the last equity that we were raising at cost. So the go forward plan is to get the dry powder invested, but the kind of debt facility that I was describing before in place, and start to use a little leverage, in terms of further building out the portfolio. But we've already been on record as saying, all things being equal, we would like to take that platform public at some point. So that's still our desire, and it's still probably the most likely course, not guaranteed by any means, but we'll see what happens as the whole market evolves.

Operator

[Operator Instructions]

Richard B. Saltzman

Operator, if -- no more further questions at the moment? Okay, so why don't we wrap it up, and I'd just like to thank everybody again for joining us this morning and your support. We think we had a terrific year in 2012, and we're looking forward to more of same in '13. So thank you for being a part of it with us.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Source: Colony Financial Management Discusses Q4 2012 Results - Earnings Call Transcript

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